You Can’t Con an O’Connor

This year the Cynic will be running spotlight articles on Vermont businesses, and the major and minor concerns facing local business owners. This article introduces ideas which will be revisited in later issues. Readers can look forward to a variety of articles highlighting local business issues.

Auckland, New Zealand, a growing city with more than a million residents, is experiencing dynamic change in a variety of ways.

Rapid growth means that city planners must react quickly to create action plans in response to a frightening list of problems, which will all be demanding serious attention in the next few decades.

As Peter Scott, resident of the forward-looking Earthsong Eco-Neighborhood, put it, “Auckland is going through growing pains.” With the city’s population expected to double by 2050, there is serious concern that Auckland’s electricity delivery systems, road networks, and public transportation infrastructure will be wholly insufficient in accommodating the growth.

With rapidly rising real estate values enticing in wealthier families and pushing out poorer ones, Auckland will be going through widespread demographic changes in the next few decades.

If current growth levels continue, Auckland’s economy will be bigger, stronger and very different from what it is today. With so many BIG problems, BIG issues, and BIG changes happening in the Auckland region, one wonders what the major concerns of the business community are. The problem is, there is very little that is BIG about the businesses that are operating in and around the greater Auckland area. According to Lesley Baddon, manager of the Economic Development Group for the Auckland Regional Council, most of the Auckland economy is composed of small firms with under five workers on the payroll.

In the 1970s, the government used training and grant programs to focus on small business development.

Today, small firms dominate the business landscape with a full 85 percent of businesses having fewer than six full-time employees.

So what’s the deal? Are the major concerns of the Auckland economy the major concerns of small business owners in the region? To answer this question we need to investigate the major macro concerns of the Auckland economy as a whole and determine if these are aligned with the micro decisions that small business owners make on a daily basis.

According to an article called “Intensification in Auckland: Issues and Policy Implications” by Ann Dupuis and Jenny Dixin, “historically transportation needs [in the region] were serviced mainly by motorway construction, with relatively limited public transportation provision.” Despite the fact that Auckland’s population has been growing rapidly, little has been done recently to increase road networks.

The lack of road infrastructure build-up has not hampered car sales. Danny Rankin, new car sales consultant at a local Toyota dealership, explains that “New Zealanders are socialized from a very young age to first buy their own cars and then buy their own homes.” Lawrence Schmetzer, sales consultant at Auckland’s John Andrew Ford Dealership, adds that cars are a central part of New Zealand’s culture.

He says that, “vehicle ownership contributes to a sense of independence and provides access to outdoors activities like camping and surfing.” Some locals even go as far as to compare New Zealanders’ desire to drive their own cars to some American’s fierce desire to fight to maintain the right to bear arms.

The bottom line is, in a culture that values car ownership, more people means more cars. Traffic congestion problems in Auckland have shifted from being a consistent annoyance to being a serious limiting factor on economic growth. According to the government report called Business and Economy for the Auckland Region for 2004, “the economy-wide costs of traffic congestion in Auckland are estimated to be in the vicinity of 1 billion dollars, or around. 7 percent of New Zealand’s GDP.” There are simply no detours around the problem, traffic congestion is a serious issue for the Auckland economy.

Another major concern for the Auckland region is the rapidly rising real estate prices which have come with economic development. In fact, the housing market is currently the biggest factor in Auckland’s economic growth, with increasing home values accounting for thirty percent of the region’s growth.

The same Auckland Region Business and Economy report cited earlier estimates that 70 percent of household wealth is tied up in home ownership.

The wealth effect of rising asset value will cause people to feel wealthier and be more inclined to spend a bigger part of their incomes. Increased expenditure of disposable income on goods and services will be a key source of growth for local businesses.

It seems that the two major concerns of the Auckland economy as a whole are the limiting effect caused by traffic congestion and the opportunity for growth allowed for by the increased spending which is indirectly caused by rising real estate prices. The question is, do these major macro concerns correspond to the concerns of local small business owners? Dan Roxborugh, co-owner of the delightful O’Carroll’s Pub in downtown Auckland would tend to disagree. He entered into the fiercely competitive local restaurant market three years ago. Dan says that every week he sees two bars shutting down and two more opening up. Mr. Roxborugh adds that the bar business is “a fickle one” and credits success to “having your finger on the pulse” more than anything else. Another key to his success is his ideal location and proximity to high levels of foot traffic. He has little trouble finding dependable workers and his major concern is in holding on to his customer base and not letting his bar “go stale” in the public eye.

All he expects from his successful bar is “steady business– no rapid growth, no millions — but a decent business.” When asked what effect rising real estate prices would have on his businesses, Dan shrugged the question off saying that it would have little effect on his decisions. His client-base is businessmen who come from other parts of the central business district during lunch breaks and after work.

Dan says that how well he does depends much more on the business cycle than on the housing market. After all, the pub caters to business people, not to families. When prodded further he conceded that if rising property values cause wealthier people to move in, there might be positive effect for his business. Overall though, rising real estate values will have very little effect on the way he runs his business. The congestion issue is similarly irrelevant as far as Mr. Roxborugh is concerned. No matter how bad the traffic is, people will sit through it in order to get into the central business district to go to work. O’Carroll’s pub caters to people who are already in the city center, not people who might or might not commute into the city for a meal, depending on how bad the traffic is.

The Auckland region might lose one billion dollars each year to problems resulting from traffic congestion. But, even so, Mr. Roxborugh needs to focus very little attention on such big-scale issues or even on the Auckland economy as a whole. Barring extreme circumstances the macro concerns of the regional economy are not nearly as important as O’Carroll’s ability to compete with other local bars and pubs. It does not matter to Mr. Roxborugh one way or another how long his customers have to sit in traffic in order to get to work in the morning any more than it matters whether his clients take the bus, walk, or drive to work. Big issues like real estate and traffic affect all small businesses and bars in the area in the same ways. Since all businesses are affected equally, the playing field is kept level. As long as O’Carroll’s can compete with other local pubs, Dan will stay in business.

In the end, macro concerns are too broad to matter much on a micro level. Providing speedy service, fantastic food, and gallons of Guinness are the things that keep drawing customers back and make O’Carroll’s a successful business. In the future, city politicians and planners will have to deal with a number of serious region-wide issues.

Mr. Roxborugh might suggest that big problems are the concern of the people who work on the macro level and are not really an issue for small business owners who stay focused on the micro-level of everyday decision-making. As far as pub-owners like Dan are concerned, suggesting a Guinness a day to keep the doctor away is the extent they need to go to in helping their city deal with its “growing pains.”